We're currently using a freelancing platform simply for this problem, which means he's losing 10% and I am paying an extra 5% just for this.
Any better solution?
Note: Paypal invoices don't count. They can send a paypal invoice but that has zero legal value if he's not a registered business entity (according to my accountant).
Even if they are not registered in their country as a business, you can ask them to invoice you as an individual and then pay them.
If you're required to business only with entities registered with some 3rd party (who? some government? your government?) then you should be able to refer to them for whatever documentation rules there are.
Maybe your accountant has not sufficiently explained the details you you, or is just outright mistaken themselves?
If someone didn't even bothered to pay for business license, and hire an accountant, I highly doubt they will hire a lawyer.
Note, I'm endorsing not paying people for the services rendered,but this should be explained upfront, that proper invoice is needed in order to get paid.
It is probably smarter to do something better than handwritten invoice but I am glad there are not so many hurdles to starting a business here. I have dealt with a lot of contractors here who don’t even issue a paper invoice for small jobs, they just tell me how much I owe and I just pay.
Small jobs probably are not worth suing for. But I’m sure if I don’t pay for a big enough job, they would sue me.
you need to save a paper or electronic trail, every email or instant message should be treated as a future evidence in court
while technically US citizens don't need a business license to be self-employed, federal or local state agencies may still charge you, as some people were forced to pay for a business license just b/c they were running blogs with ads, and received some pennies in ads revenue
It's not your problem. There is exactly one thing your company can do (which defeats the whole purpose): open a branch office in their country and employ them as a regular role.
If you're not doing that, how they issue you an invoice is irrelevant to you.
It is then the responsibility of the unregistered freelancer to go and reclaim their share of taxes from the tax authority (since they usually don't have to pay taxes, not even VAT, until they reach a certain annual income limit). IMO, it is much less of a hassle to simply register as a sole proprietor correctly than to go through this process.
Also, working with such people (who didn't even bothered to register as self-employed) can create accounting and legal/HR headaches for a properly run company.
The first time I encountered this was when the startup company, I worked for, hired an 18 y.o. freelancer for a one-time job.
Nex time at another company, we wanted to purchase a software, and turned out it was just a single guy without any business license or a company, so our CFO had to spend days to draw a purchase contract, so he could've been paid.
VAT taxes and such are the responsibility of the seller, not the buyer. Your freelancers can make their invoices in Excel or Pages, send them to you and you pay. There is no reason that there would be an issue. Sometimes a company has accountants who are lacking and only know how to do one thing, unwilling to learn. I highly doubt his/her claims that all invoices have to come from a registered business entity. But for these kind of questions you need to tell which country you're to get the most precise answers.
Have we been doing it completely wrong this whole time...?
In some of them a "tax invoice" is indeed an official legal document.
In some countries the format of the invoices is highly standardized and regulated, and even an invoicing software has to be certified by the tax authority.